UK equities are profoundly undervalued, but the FTSE 100 may not be the best way to gain from any shift in sentiment, according to the guests on the latest edition of the FTAdviser podcast.
The podcast, sponsored by Schroders, also examined whether the high levels of government debt being racked up during the coronavirus crisis would affect equity investors, whether the FTSE 100 was now best thought of as an income investor's index, and what impact the value of sterling would have on investors.
Bill Casey, who jointly runs the the UK Alpha Plus at Schroders, said: “In our fund, we have been moving down the market cap scale in the UK, more than half of the fund is now outside of the FTSE 100.
"The UK is suffering from being in the longest commodity bear market in history, but even then, like for like stocks in the UK are cheaper compared with stocks listed in other markets.”
Hugh Gimber, global market strategist at JP Morgan Asset Management, said: “Despite the recent under performance, there are definitely still opportunities in the UK. But I think the FTSE 100 is not the best way to access those, the underperformance of the large caps is not about the pandemic on its own, or Brexit on its own, it’s about the composition of the index.
"The FTSE 100 has many companies that are structurally challenged but lower down the market cap scale there is less of that.”
Duncan McInnes, who jointly runs the Ruffer investment trust, says that while he and his colleagues were very sceptical of the outlook for equity markets generally, they regarded the UK as a particular bright spot.
He said: “About half of the total equity exposure we have is in the UK, and focused in a lot of cases on domestic companies. We think inflation will pick up, and that helps many of the internationally focused companies that are listed in the UK. But another mega trend is political uncertainty. The UK has an advantage there because its respect for the rule of law is known throughout the world.”
You can listen to the podcast by clicking play on the video above or by going to Acast, Apple Podcasts, Spotify or Stitcher.